The US/Israel attack on Iran and the closure of the Strait of Hormuz have forced a rapid reassessment of Middle East risk across commodities, currencies, credit markets and emerging market inflation
Brent crude was trading at $76 a barrel on Monday. Citi's commodities team now sees it pushing into the low to mid-$80s as an initial reaction to the weekend's strikes, with Iranian exports curtailed for at least the duration of the conflict and potentially longer, depending on what Tehran's interim leadership decides to do next.
That leadership question matters more than most. Iran's constitution explicitly anticipates sudden leadership loss, transferring authority immediately to an interim council of the president, the head of the judiciary and a senior cleric.
There is no deadline for choosing a permanent successor, which means the conflict could run longer than markets currently expect. Some specialists believe Iran's long-range missile capacity may be exhausted within a fortnight. But Citi is not treating that as the base case.
Where the damage spreads
The Strait of Hormuz handles roughly 22% of the world's crude output. Saudi Arabia and the UAE can divert some exports through pipelines. Kuwait, Qatar and Bahrain cannot. They have no alternative routes, which makes them the most economically exposed GCC members to a sustained closure.
The Gulf's reputation as a stable financial hub took a direct hit this weekend. Dubai International Airport, which handled over 92 million passengers in 2024 and had overtaken petrochemical exports as Saudi Arabia's top revenue earner, was shut down.
DP World suspended operations at Jebel Ali port. UAE credit faces particular strain, compounded by JPMorgan's decision in late February to remove the UAE from its EMBI index.
The emerging market problem
A sustained $10-per-barrel oil shock could aggressively de-anchor inflation expectations across emerging markets, hitting countries with low foreign exchange reserves hardest. Argentina, Sri Lanka, Pakistan and Turkey are most exposed to sudden capital outflows.
Citi's playbook for clients wanting to hedge: buy oil itself, as the most direct protection. Gold and US rates may also help. Most currency hedges, the note warns, are less reliable and heavily dependent on positioning at the time of the shock.